Air India Divestment takes Nationalistic colours with new Criteria

The Indian government has proposed certain conditions in its disinvestment bid to sell 76% stake in the state-carrier Air India group (comprising full-service Air India, low-cost arm Air India Express and Air India SATS airport services) to private parties.

First, the brand ‘Air India’ should be retained. Second, the control of the airline post disinvestment should be with Indian nationals. This shows a distinctive tilt towards nationalism in the highly sensitive divestment case.

The criteria also state that only companies with the minimum net worth of Rs 50 billion can bid, and the lead member shall hold at least 51% of the paid-up capital.

The Rs 50 billion net worth can be a roadblock for Indian airlines since Indigo, the domestic airline having the highest net worth amongst local peers in India, is still at a level that falls short of the threshold.

But the criteria have kept a window open. To facilitate participation in the bid by Indian airlines, the government has allowed carriers with zero or negative net worth to participate. However, they would have to form a consortium with other partners, and together they must add up to the stipulated threshold. This throws the field open to any airline with negative net worth, which can partner with a private equity investor, foreign airline or suchlike.

The need for domestic suitors to find eligible private investors or foreign airlines to partner with becomes imminent to see this deal through. Previous news reports have suggested partnerships like Vistara with an Asean-based airline or Jet with certain Europe or US-based airlines may apply!

The update on the new criteria follows on last year’s events when the government gave in-principle approval for disinvestment. As per the information memorandum on eligibility criteria, the management or employees could also participate directly in the bidding process or by forming a consortium.

It has now released the Expression of Interest (EOI) for divestment, and asked bidders to submit by May 14th. The bidding will be done through open, competitive bidding.

Of the airline’s nearly Rs 500 billion debt, about Rs 334 billion will have to be absorbed by the potential buyer with the balance allocated to a government holding company. While the airline made an operating profit of Rs 3 billion for the year ending March 2017, the net loss was close to Rs 58 billion.

With the government now making noises about closing this divestment process legally by the end of 2018, it implies the new suitor would be most likely identified by the mid of this year!